Tesco, the leading force in UK retail, today published Q1 2024/25 figures showing 3.6% LFL sales growth at GBP14.33 billion, a metric fuelled by “strong volume growth”, according to CEO Ken Murphy. According to Murphy, Tesco is now “the most competitive we’ve ever been”, reflected by market share gains, heightened shopper switching and improved consumer perception of the offer.
Citing Kantar Worldpanel data, Tesco said its share of the UK market stood at 27.6% at period-end, a +52bps uptick year-on-year and its largest annual share gain since 2022. For comparison, its nearest rival, Sainsbury’s, held 15.1% share for the same period, representing a 0.3pp gain. Like Tesco, Sainsbury’s also hailed a return to volume growth in its most recent quarter.
Kantar Point of View
As inflation eases, albeit in precarious fashion, and the smoke clears after a turbulent few years, we are starting to see how events of recent quarters have changed the retail landscape across multiple geographies. What recent retailer results are showing is that it is the bigger players that have emerged in best shape, and these operators are now determined to firm up their gains and leave competitors in their wake.
Across markets leading (and lesser) retailers have declared volume growth to be their primary KPI. Biedronka, for example, which currently holds around 20% of the Polish grocery market, has prioritized volume as its #1 ambition for 2024, and this philosophy is shared by market leaders as diverse as E.Leclerc in France and Australia’s Woolworths. In Germany, leading grocer Edeka has declared regaining market share lost to discounters as its main goal for 2024/25. As a reminder, Edeka holds around 29.4% of the German market, according to trade journal Lebensmittel Zeitung.
In this context, it would be easy to argue that the turmoil of Covid and beyond has only strengthened the hand of leading players around the world. These are the operators that went into the pandemic period already in strong shape and which leveraged the various governmental subsidies on offer during the crisis to coalesce their dominant market positions.
These players have emerged from the crisis in even stronger financial shape, and able to make significant price investments during the post-Covid inflationary surge to make their respective offers even more compelling to consumers, be that through investing in attractive loyalty programs, like Tesco Clubcard or Moja Biedronka, or simply besting rivals on overall basket price.
For suppliers and brands, this suggests an outlook in which market leaders’ dominance and their ability to drive volumes leads to a bifurcated retail landscape marked by mega-players and a growing rump of second-tier operators. This places more power in the hands of fewer operators, enabling them to dictate terms in their favour by dangling the carrot of volume growth for brands, albeit in a way that further boosts margins and permits them to maintain and extend their influence over their key markets.
One way this scenario may be averted is through regulation. We are already seeing signs that governments are becoming concerned over inordinate levels of influence exerted over the industry and how this unbalances fair relationships between suppliers and their customers.
Australia, for example, is introducing new safeguards to curb the dominance of its two leading supermarkets, Woolworths and Coles, while US President Joe Biden has railed against perceived price gouging in retail. However, whether these initiatives will survive the electoral upheaval of 2024, where incoming governments will be focused on weightier matters than regulation of retail, remains to be seen.
The watchout for suppliers may not be so much a need to accommodate the demands of these mega-retailers but those of tier-two operators. These will likely be even more invested in rationalizing ranges and intensifying private label development to enhance competitivity versus the dominant market forces. They will be equally focused on volumes, but without the advanced mechanisms their rivals possess. This will create a more divergent climate for retailer relationships going forward.
Further Reading:
Can volume growth make a comeback?
Addressing the volume dilemma to restore profit growth
Striking a balance (Upcoming webinar)
